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The Benefits of Investing in Employee Retention

This time of year brings thoughts of change and new opportunities. If your business is looking forward to the new year with great hope and potential on the horizon, you’re not alone. According to the Conference Board, CEO confidence surged in the final quarter of 2016, reaching its highest level in nearly six years. Also, business leaders’ appraisal of current conditions in their own industries also improved significantly, with forty-six percent stating conditions in their own industries have improved versus only twenty-one percent in the third quarter.

As part of any smart business planning, CEOs and business leaders are always working to understand where to invest business capital. Capital investments can, of course, take the form of purchases to improve or expand operations, but thoughtful owners and operators think of brainpower, skills, and experience as investable assets, as well, and as keys to business success.

One of the most rewarding areas of investment is in employee retention — investment in human capital. As I work with businesses and read about what affects business operations the most, I have noticed that employees consistently have the most impact, good or bad, on the success of a business. For purposes of my thoughts here, I will focus on the benefits of retention and touch only lightly on some downsides of the departure of good employees.

The Benefits of Retaining Employees

When examining successfully run companies, the one trait they have in common is longevity in their workforce. A seasoned workforce has the institutional knowledge that can make operations more efficient. The employees know their jobs and have figured out the best way to complete their tasks and objectives. Plus, business rarely needs to spend time training a new hire. Employees maintain unwritten rules of behavior and reinforce culture through a community of coworkers who have worked together over the course of years. If the rare need to assimilate a new person arises, existing employees can team up to smooth the transition and reduce the impact on productivity.

This is not to say that you should retain all employees at any cost. Certainly, employers need to remove bad apples from the basket and hire special talent to pursue new opportunities. The issue here is to identify the good employees and work to understand what you need to provide, as an employer, to keep quality employees from jumping ship. Succeed, and daily operations are likely to run more smoothly and efficiently. When your company needs to make a change or chooses to expand, onboarding and integrating new hires is simplified with good employees in place. In companies with low employee retention rates, it is difficult to ensconce the company’s culture and its “way of doing things”.

The Costs of Replacing Employees

What really brings home the value of employee retention is the cost of replacing an employee. Depending on the level of employee you replace, it can cost anywhere from twenty percent to four hundred percent of the departing employee’s annual salary to find and install a replacement. If employee churn is persistent, even if you replace only a few employees a year, the cost is significant. This is the hard, measurable cost to poor employee retention. Additional intangibles include lost productivity and a general lack of personal investment in the company. Both of these maladies will cause a significant and negative impact the bottom line of any business.

Go Forth and Retain

So, as the new year begins and hope is high, consider investing in personnel planning for now and the future. Think of ways to keep your quality employees, and realize that the cost of such investment will likely pay immediate and continuing dividends for years to come. Investing in your employees is likely to generate a return far greater than you imagine, both in terms of dollars and cents and in the satisfaction of building and maintaining a productive and happy community of employees.

In later posts I will discuss some effective ways improve employee retention that small and large companies can implement and that do not require wholesale changes or even necessarily large investments of time or money.

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Disclaimer: The information in this blog post is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Stephen Dietrich, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
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About The Author: Stephen Dietrich is an attorney and author who has a passionate interest in the human side of business. His distinctive combination of legal and business knowledge, human insight, and dedication to clients makes him uniquely qualified to help corporate leaders and other C-level executives navigate high-value mergers and acquisitions, restructure transactions, and manage day-to-day operations. Through this blog, Stephen shares his extensive experience and unique personal and professional insights in the hope of stirring thought and dialogue that leads to ever deepening insights and understanding. For more information, please visit www.StephenDietrich.com.

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